FROLITICKS

Satirical commentary on Canadian and American current political issues

May 16

With Friends Like the U.S., Who Needs Enemies!

by bcurry

Well, President Trump is at it again. This time he has launched an all out trade war with the second largest economy in the world — China. As of next week, virtually all of the imports from China to the States will be under increased or new tariffs. In turn, the Chinese will retaliate by placing new tariffs on American imports to that country worth billions of dollars.

What does this mean for Canada? The Bank of Canada predicts that the U.S.-China trade war will shave 0.8 percentage points off the Canada’s Gross Domestic Product (GDP). Already, various Canadian agricultural exports to China, such as granola and soy beans, are down or non-existent because of an extradition request by the Americans and subsequent arrest in Vancouver last December of the Chief Financial Officer Meng Wanzhou of Huawei Technologies Co. The decision to proceed with the extradition process sets in motion proceedings that could drag on for months and possibly years, inviting further retaliation measures by the Chinese government and costing Canadian suppliers billions of dollars. The American request has also resulted in the questionable arrest of Canadian citizens in China by its government.

As a result of the trade war, it is estimated that the U.S. itself could lose a full percentage point off its GDP, possibly costing some 1.5 million jobs. In turn, due to Canada’s close reliance on trade with its partner to the south, the Bank of Montreal predicts that some 150,000 Canadian jobs could be affected down the road by the resulting decline in economic activity between the two countries. In addition, the U.S. continues to refuse to eliminate the existing tariffs on steel and aluminum coming from Canada and Mexico. To date, U.S. refusal to do so has prevented both countries from ratifying the proposed new North American free-trade deal which would benefit all three countries.

Good political, defence, cultural and economic relationships between Canada and the U.S. are longstanding. Hundreds of thousands of Americans and Canadians work and live on both sides of the longest border in the world.  Together, we have made a robust and viable North American economy, with 70 percent of Canada’s trade being with the U.S.  However, this relationship has been damaged by the recent actions of Trump administration, although hopefully not beyond repair.  Under the current circumstances, all one can do is reiterate that with friends like this, who needs enemies!

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Apr 3

Getting Closer to a World Economic Recession

by bcurry

One does not have to look too far or to be an economist to understand that there is the real danger among the world’s economies of a near future recession. On the one hand, you have the negative results of the U.S. tariffs on China, Europe and Canada. On the other hand, Brexit is already damaging the British economy, and the possibility of a no-deal with the European Union is a definite chaotic possibility.

Meanwhile, Japan’s economic growth is stumbling, particularly as trade with one of its biggest customers, China, is in trouble. China is the biggest driver of global growth, so its slowdown — or fear of it — is stoking concerns about the prospect of a worldwide recession. Japanese consumer electronics and automotive companies that depend on their fast-growing neighbour — China — are now slashing profit forecasts and considering idling factories.

Donald Trump’s administration, in the meantime, is all over the map. There appears to be no end in sight in the trade negotiations with China.  American and Canadian farmers — especially those with seed crops like canola — are already feeling the pinch as a result of losing the once profitable Chinese market.

While a global recession may not be as horrendous as that in 2005, the fact is that governments and central banks today have fewer tools to deal with it. Governments in North America and Europe have run up enormous debts in recent years.  Consumers also have run up huge debts over the last decade in light of extremely low borrowing interest rates.  Moreover, there is little wiggle room for governments to respond proactively.  The growth in Gross Domestic Product (GDP) is declining everywhere. National unemployment rates are still low, but for the wrong reasons.  While there are too few skilled workers for those trades and professions needed in our modern economies, people are being forced to take lower skilled and lower paying jobs in the retail and service industries.  Average wages for the middle class have not increased adequately when inflation is taken into account, while family debt loads continue to go up.  Given that they drive over 70 percent of annual GDP growth, don’t expect consumers to help get us out quickly of the next recession. As politicians like to say, people are going to have to tighten their belts!  The question is — for how long?

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Sep 21

Are We Heading Towards Another Global Recession?

by bcurry

After following numerous financial experts and economists aligned with various reliable sources, it has become clear that there is no real agreement or consensus on what will happen to the global economy in the next year. Ten years after the great recession, everyone agrees that the economies of most countries have bounced back, but are still somewhat tenuous.

But then comes along President Trump and his protectionist policies, including tariffs on products from China, Canada and the E.U. The trade war with China is especially dangerous. We must not forget that the continuous upsurge in the Chinese economy and their fiscal-monetary policies helped many economies to recover after 2008.  However, the Chinese economy’s growth has slowed down and trade is less a factor than it was 10 years ago.

Domestic corporate, government and consumer debt has climbed in most industrialized countries, including in the U.S. and Canada. Much of the debt increase has of course resulted from the continuing low-interest rates for borrowing used to stimulate economies, but potentially at a considerable future cost.  At the same time, any significant growth in wages has not occurred, leaving many people to rely on debt to maintain current standards of living.  The richest people have greatly benefited from capital tax policies and by corporations who have preferred to benefit their shareholders.  Most companies have also paid out big executive bonuses rather than reinvesting profits into their firms and R&D.  In the U.S., executive compensation now represents more than 400 percent of the average worker’s annual wages.

As if in some kind of self-denial, stock markets have continued to climb despite a number of recent ominous economic signs. Given that we are in unknown territory with little room for manoeuvrability, even central banks appear to be at a lost as to what to do next.  Most experts agree that there needs to be a major market correction given that the value of many stocks is out of whack with reality.  In addition, the economies of E.U. countries are still in turmoil, especially with Britain’s decision to leave the Union and other members possibly following suit. Moreover, all you and I can do is sit and wait and hope for the best.  After all, we don’t have the power of the American President to influence the global economy.

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Aug 31

Trump’s Trade War With China Can Only Increase Global Economic Concerns

by bcurry

President Donald Trump wants to move ahead with a plan to impose additional tariffs worth US$200 billion in Chinese imports as soon as a public-comment period concludes on September 6th.  The action is likely to further unnerve financial markets that have been concerned about the growing tensions. Stocks fell on the news, with the S&P 500 testing the key 2,900 level. The offshore yuan dropped to a new low, while the dollar and the yen gained amid a flight to safety. As in the case of the earlier imposed tariffs on steel and aluminum, the proposed tariffs are bound to affect other countries. The tariff news exacerbated already fragile market sentiment amid currency routs in Argentina and Turkey. In addition, American consumers will feel the effects in the form of more expensive manufactured and other goods imported from China.

Yes, while there are some concerns about China’s trade policies in the past, copyright infringements on some products, and restrictions on foreign investment in the country, I’m not sure that Trump’s negotiating tactics are necessarily the best way to deal with these issues. Chinese President Xi Jinping has made it very clear that China will not be bullied into any trade agreement with the U.S.  In addition, the full impact of a trade war has yet to happen in the U.S.  How many sectors and industries will the administration have to provide public funds to offset the economic impact, as was done recently in the agricultural sector?  Who pays for this?

China, like Russia and some other countries, is already moving away from using the American dollar as a primary currency used in foreign trade. As well, China’s nearly $13 trillion economy, which no longer depends so much on exports and can easily find other places besides the U.S. to sell its products, can take the hit much better than the U.S.  This is especially true as the U.S. has started trade disputes on several fronts at the same time, such as with Europe and Canada.  Most of China’s products imported to the States, and there are many of them, still won’t have any tariffs on them at this time.  Many American businesses depend heavily on global supply chains, such as China, in order to remain competitive and viable.

Since Donald Trump’s election, the Chinese, including its banks, had made earlier concessions of foreign investment and the lowering of tariffs on imported cars. It would appear that a thoughtful, reciprocal and incremental approach to trade negotiations would have made more sense for all concerned.  Instead, we have an American President who says that “trade wars are good”. I’m not so sure.  Are you?

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Jul 26

U.S. Has Given Way To China When It Comes To Trade And Foreign Investment

by bcurry

In recent years, China, the second largest economy in the world, has made major strides in trade with other countries and in investment abroad. China’s position in Asia has been strengthened by President Trump’s withdrawal from trade negotiations under the Trans-Pacific Partnership (TPP). While the U.S. withdrawal may have slowed the TPP talks, most countries, including Canada and Japan, believe that trade talks will continue, either bilaterally or multilaterally. Australia’s trade minister even went so far as to suggest the remaining 11 countries could ask China to join the deal instead. Moreover, China has offered up its own version of the pact, one that excludes the U.S. and favors China’s more mercantilist approach. Indeed, Canada and China have now agreed to start exploratory trade talks in the fall.

In the Middle East and Africa, China is making major inroads in terms of trade, investment and infrastructure development in several countries. Take the example of Iran where China is currently investing billions in infrastructure improvements such as bridges, rails, ports and energy. As a result of unilateral American sanctions that intimidate global banks, China is the only source of the large amounts of capital that Iran needs to finance critical infrastructure projects. China is also an important market for Iranian oil, even after Western sanctions were lifted in 2016 allowing Iran to again sell oil in European markets. With the completion of rail lines from Urumqi, the capital of China’s western region of Xinjiang, to Tehran, China will have a faster and more direct link to export its goods as far as northern Europe, Poland and Russia — at much less cost than today.

Elsewhere, Chinese President Xi Jinping made a trip through Latin America in November 2016, his third in four years. Bloomberg News reported that he signed more than 40 deals, and committed billions of dollars of investments in that region.  In January 2017, President Xi became the first Chinese president to attend the World Economic Forum at Davos. His aim was no doubt to reinforce the message of Chinese global leadership on free trade.

The TPP was all about the U.S. showing leadership in the Asia region.  In the end, trade experts believe that with U.S. not there, the void has to be filled.  It will be filled by China.  Years ago, I read a book entitled “China Inc.” by Ted C. Fishman*.  Well worth reading, the book highlighted China’s impressive and unprecedented economic gains while becoming a power house.  When it comes to trade and foreign investment, I’m certain that Mr. Fishman would agree today that the Trump administration could be the best thing that’s happened to China in a long time.

* China Inc. (How the Rise of the Next Superpower Challenges America and the World): Ted. C. Fishman (Scribner, New York, N.Y., 2005)

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